The Reserve Bank of Australia interest rate unlikely to remain unchanged in 2015: Board meeting explains "Monetary policy is appropriately configured to foster sustainable growth..."

By Economics Monitor

Nov 03, 2014 04:30 PM EST

The Reserve Bank of Australia kept its benchmark interest rate unchanged at 2.5 percent at its board meeting in October and said, "Monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates”.

The Reserve Bank of Australia (RBA) is scheduled to hold its next monetary policy meeting on 5 November.

Analysts expect that interest rates would not remain stable next year due to heated property markets in Sydney and Melbourne and rising unemployment rates. They say that the central bank will sail through 2014 without a single interest change, but it is unlikely to remain steady in 2015.

Market Economics managing director Stephen Koukoulas said, “I don’t think we’re headed for another financial crisis, but growth is very sluggish” and predicts that if the rates change next year, it will move downwards.”

“If unemployment is up at 6.5%, the property market comes off the boil and commodity prices are still not strong enough, the next move for rates is down,” he said.

Shane Garrett, senior economist at HIA said that the current key measures of key inflation are in tune with the Reserve Bank of Australia’s target range.

He said, “The housing component of the (Consumer Price) Index provides a good example of the impact the carbon tax was having on households. The electricity price level dropped 4.4% in the September 2014 quarter, and by 5.1% over the year. Policy makers must address the high cost of delivering residential land to market if we are to make meaningful inroads into the housing affordability challenge,” he says.

Charles St-Arnaud, FX Strategist at Nomura, does not expect the RBA to consider any changes to its interest rate this week, adding that the central bank will keep monetary policy steady until mid-2015.

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